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FedEx faces US racketeering lawsuit by former delivery contractor

FILE PHOTO: FedEx stock tanks amid recession warning

By Lisa Baertlein

LOS ANGELES (Reuters) - A company that FedEx once contracted to deliver packages on the California-Oregon border has sued the shipper, alleging it engages in a systemic pattern of illegal and wrongful business practices that violate U.S. anti-racketeering law.

The lawsuit filed Nov. 14 in a California federal court by PYNQ Logistics Services, which has not been previously reported, seeks a court determination that PYNQ's relationship with FedEx Ground is that of an employee rather than a contractor. PYNQ also reserved the right to pursue the case as a class action.

If successful, the case could threaten the promised cost-savings from a restructuring through which FedEx has been shifting significant package volume from its employee-staffed Express unit to its Ground unit that relies on about 6,000 contractors to handle delivery and transportation services.

The case appears to be the first where a former FedEx Ground contractor has sued the global delivery giant under the U.S. Racketeer Influenced and Corrupt Organizations Act (RICO), said attorney Jeffrey Possinger, who represents the plaintiff.

"This is a twist of an attack on the independent contractor relationship. They set this up as fraud claims to avoid arbitration," said Frank Botta, former in-house attorney for the company that FedEx bought and rebranded as its Ground business. He now defends companies facing legal challenges involving contractors as a partner at Lynch Law Group in Pennsylvania, though he is not involved in this case.

FedEx in a statement said it was aware of the allegations and would "vigorously defend the lawsuit." As of the close of business on Thursday, FedEx had not filed a response in court.

"The biggest concern is that this case might morph into a class action case. If that happens, it's going to be a long, hard-fought battle," said Botta.

PYNQ alleged that FedEx violates laws governing contractors by exercising the same level of control over those service providers as it would over employees.

Using contractors enables Ground to shift employee and other expenses to those service providers. It also helps FedEx control labor costs by thwarting union organizing efforts, which are more complex at many small companies than at one large company.

PYNQ, owned by former airline pilot Tara Wright, in 2021 spent $1.13 million to buy two FedEx Ground delivery areas with routes serving northern California's McKinleyville and Crescent City. FedEx sent termination letters on both service areas in May and sold one of them without her consent and without compensation. There was not time to sell the second area, leading to a loss, PYNQ's attorney Possinger said.

FedEx used new systems that rate delivery service and value areas to help support its actions, according to the complaint.

PYNQ claimed that FedEx knowingly withheld information that would have been material to its decision to become a contractor.

FedEx also prevented PYNQ from changing its business to improve profitability or from recouping its investment through the sale of its delivery areas, according to the lawsuit.

PYNQ alleged that many of the company's operating policies and procedures were not disclosed, were unfairly applied or subject to change without notice, and that they were elements of a systemic pattern of deceptive practices that rose to the level of racketeering.

(Reporting by Lisa Baertlein in Los Angeles; additional reporting by Jonathan Stempel in New York and Tom Hals in Wilmington, Delaware; Editing by David Gregorio)